Manufacturing report shows continuing contraction in April

U.S. manufacturing activity contracted in April at the same pace as in the previous month, stalled near its lowest level in five years, a private trade group said Thursday.

The Institute for Supply Management, a trade group of purchasing executives, said it manufacturing gauge was steady at 48.6 last month, unchanged from March.

But it beat economists' expectations for a reading of 48, according to the consensus estimate of Wall Street economists surveyed by Thomson Financial/IFR.

A reading above 50 shows the economy is growing, while a reading below 50 signals contraction.

"The economy seems to be muddling through," said David Resler, chief economist for Nomura Securities. The narrow range the manufacturing index has stayed in over the past five months is a good sign, he said.

"Usually, when the economy is going into recession, the ISM moves below 50 and it keeps heading lower," he said. "It's not followed that pattern yet."

Higher costs continue to hurt manufacturing. Manufacturers surveyed saw price increases for almost every commodity, from steel to aluminum. Only prices for methanol, a building block for chemical products from construction materials to windshield washer fluid, did not increase.

On the positive side, backlogs of orders rose, an indication that some manufacturers had more orders than they could keep up with.

Roland Chalons-Browne, president and CEO of Siemens Financial Services, a business-financing unit of German conglomerate Siemens AG, said the backlog growth may be an early sign the economy could pick up in the second half of the year, helped by lower interest rates, the stimulus package and the stabilization of the dollar.

"I think we're going to see more positive third and fourth quarter results," he said.